Market Setting Low Rates for Wind Power in Peru Through Auction

Peru awarded developers contracts to sell power from 10 renewable energy projects using an auction system that’s become more common among South American countries that want to let the market set the price for clean electricity.

Prices ranged from $69 a megawatt-hour for a wind farm to $119.90 for a photovoltaic solar park, the country’s energy and mining regulator Organismo Supervisor de la Inversion en Energia y Mineria said today on its website.

That’s less than half the price of power in some countries where the government sets the rates, according to Bloomberg New Energy Finance, and comes less than a week after developers in Brazil sold power from wind farms at even lower prices through a similar auction. Uruguay accepted yesterday 23 bids in an auction for wind power at comparable levels.

“Auctions provide a price-discovery mechanism,” Jenny Chase, an analyst at New Energy Finance, said today in a telephone interview. “Most that have been held in the world so far have led to much lower prices than other incentive programs like feed-in-tariffs.”

Developers in Italy receive 145 euros ($209) for a megawatt-hour of electricity generated by renewable sources, under a government incentive system, according to data compiled by New Energy Finance. Wind farms get 77 euros a megawatt-hour in Spain and 82 euros in France, both through feed-in tariff programs in which the government sets a fixed price for power.

Cheapest Power Source

Wind developers in Brazil were awarded contracts at an average price of 99.58 reais ($61.99) a megawatt-hour at an auction completed Aug. 17, making it the country’s cheapest source of power.

Bids for a Uruguay auction that’s still in process fell as low as $63 a megawatt-hour, according to a statement posted online by state-owned power company Usinas y Terminales Electricas.

Too many companies competing for too few contracts may have prompted developers to accept contracts at unsustainably low levels, Eduardo Tabbush, a New Energy Finance analyst, said in a telephone interview.

“These prices are almost too good to be true,” he said. Developers in Peru may be “bidding below what’s financially viable.”

Brazil has domestic wind-turbine manufacturers and some of the most blustery weather in the region, while the same can’t be said of Uruguay and Peru, Tabbush said.